European insurers to benefit from increase in government bond yields

Written by Adam Cadle

17/03/2025

Higher government bond yields linked to increased defence spending are broadly positive for most European insurers, Fitch Ratings has said.

“Profitability typically benefits from premiums being invested at higher yields, and the steepening of the yield curve could make some life insurance products more attractive to customers, giving a boost to new business volumes,” it added.

For most European insurers, the main downside of the higher bond yield is likely to be an increase in refinancing costs. However, Fitch said it does not expect this to significantly weaken the profitability of rated insurers. Refinancing needs are generally limited due to insurers’ well-spread debt maturity profiles and levels of debt that are contained by regulatory considerations, as well as other factors, which may include credit ratings.

On the issue of Solvency II positions, Fitch said higher bond yields – and increased volatility in bond yields – will directly affect these, however, the impact is expected to be limited as European insurers tend to broadly duration-match their assets to their liabilities or use hedging to limit their capital sensitivity to bond yields. Similarly, the accounting impact to expected to be limited.

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